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More Than A Million Families Struggling With 'Problem Debt'

More than 1.6 million households are in "extreme problem debt" and wage stagnation is making the problem worse, according to a report by TUC and UNISON.

It found that total unsecured debt levels, which excludes mortgages, increased from £48bn in 2012, to £353bn in 2015, with many low-income families under severe pressure.

Of the 1.6 million households in extreme problem debt, it is estimated that 1.2 million have a household income below £30,000.

The report, Britain In The Red, said some 3.2 million households are in "problem debt" - where they pay out more than a quarter of income on unsecured debt repayments.

Another 1.6 million are in "extreme problem debt", paying more than 40% on repayments.

Frances O'Grady, TUC general secretary, said: "Families can't continue relying on credit cards and loans to get by, but with the average wage still worth £40 less than before the 2008 crash, lots of families have little choice.

"Higher wages must be at the heart of the Government's economic plan. We need a return to proper year-on-year pay rises, and a higher national minimum wage."

For low-income households in employment, extreme problem debt is growing fast, rising from 5% in 2014 to 9% in 2015.

Peter Tutton, head of policy at StepChange Debt Charity, said: "Every week we see thousands of households struggling to keep up with their essential bills and credit repayments.

"Sluggish wage growth and the rise in insecure jobs have left households even more financially vulnerable.

"Too many households are relying on credit to get by and this massively increases their chances of falling into severe problem debt."

The mountain of unsecured household debt has been fuelled by a collapse in the value of wages.

OECD figures show UK real wages declined by 10.4% between 2007 and 2015. This means that the fall in the real value of wages has made it harder for families to service existing debt.

A government spokesman said: "Living standards have reached their highest ever level and for almost two years wages have risen faster than prices.

"Thanks to changes in the personal allowance, we have taken millions of the lowest paid out of paying income tax and workers will also feel the benefits of the new National Living Wage, which has already boosted pay for over a million people since it came into force this April."

Bank of England figures show that consumer credit, which makes up the main part of unsecured debt, is now growing at an annual rate of 10%. This is the highest growth rate for more than a decade.